1. Chapter 4 Consumer Behavior Market Research, and Advertisement

2. Learning Objectives 1. Online Decision Making of Consumers 2. Describe how companies are building one-to one relationships (personalization) with customers. – e-loyalty and e-trust 3. Describe consumer market research in EC. 4. Web advertising and marketing 5. Intelligent agents in consumer issues and advertising applications – Avatars & Chatterbots Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

3. Learning about Consumer Behavior Online A Model of Consumer Behavior Online – The purpose of a consumer behavior model is to help vendors understand how a consumer makes a purchasing decision Independent (or uncontrollable) variables Intervening or moderating variables Dependent variables Roles people play in the decision-making process: – Initiator – Influencer – Decider – Buyer – User Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

4. A General Model of Consumer Behavior Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

5. The Consumer Decision Process and Supporting Communications Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

6. A model of online consumer behavior transaction log that consumers establish as they move about the Web Adds two new factors: Web site capabilities – the content, design and functionality of a site Consumer clickstream behavior – the transaction log that consumers establish as they move about the Web Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

7. Shoppers: Browsers and Buyers 2003 UCLA Internet Report: About 40% of online users are “buyers” who actually purchase online About 40% of online users research on the Web (“browsers”) and purchase them online. Significance of online browsing for offline purchasing and vice versa should not be underestimated E-commerce and traditional commerce are coupled and should be viewed by merchants and researchers as part of a continuum of consuming behavior Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

8. One-to-One Marketing, Loyalty, and Trust in EC One of the greatest benefit of EC is its ability to match products and services with individual customers give rise to one-to-one marketing one-to-one marketing Marketing that treats each customer in a unique way. Includes personalization EC enables companies to better communicate with customers and better understand customers’ needs and buying habits, and do it more cost-effectively. Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

9. One-to-One Marketing, Loyalty, and Trust in EC personalization The matching of services, products, and advertising content with individual consumers user profile The preferences, requirements, behaviors, and demographic traits of a particular customer e.g. name, sex, age, interests. cookie A data file that is placed on a user’s hard drive by a Web server, frequently without disclosure or the user’s consent, that collects information about the user’s activities at a site Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

10. One-to-One Marketing, Loyalty, and Trust in EC Customer Loyalty – Customer loyalty is the degree to which a customer will stay with a specific vendor or brand for repeat purchasing – Customer loyalty is expected to produce more sales and increased profits over time – E.g. loyalty to Guess jeans. – Can include switching costs e-loyalty Customer loyalty to an e-tailer Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

11. One-to-One Marketing, Loyalty, and Trust in EC Satisfaction in EC – Satisfaction is one of the most important consumer reactions in the B2C online environment – Recent statistics show: 80% of highly satisfied online consumers would shop again within 2 months 90% would recommend the Internet retailers to others However, 87% of dissatisfied consumers would permanently leave their Internet retailers without any complaints Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

12. Market Research for EC market segmentation The process of dividing a consumer market into logical groups for conducting marketing research, advertising, and sales Segmentation is done with the aid of tools such as data modeling and data warehousing Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

13. One-to-One Marketing, Loyalty, and Trust in EC trust The psychological status of involved parties who are willing to pursue further interaction to achieve a planned goal How to Increase Trust in EC – Trust between buyers and sellers – Brand recognition – EC security mechanisms can help solidify trust e.g. escrow providers and reputation finders. – Against  fraud on the internet Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

14. Market Research for EC The Goal of Market Research To find information and knowledge that describes the relationships among consumers, products, marketing methods, and marketers The Aim of Market Research To discover marketing opportunities and issues, to establish marketing plans, to better understand the purchasing process, and to evaluate marketing performance On the Web, the aim is to turn browsers into buyers. Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

15. Market Research for EC Background Companies use direct mail to contact customers. They frequently do so regardless of whether the products or services were suitable for various customers. E.g. ABC company sends out 4 mailing of 1,000,000. The cost of direct mailing is $1.25 and 1% customers respond. Hence, cost per responding customer is $125. market segmentation The process of dividing a consumer market into logical groups for conducting marketing research, advertising, and sales e.g. teenagers  english medium, chinese medium, malay medium, then english medium  sports loving Segmentation can be done with the aid of tools such as data modeling and data warehousing e.g. customer buying patterns E.g. Royal Bank of Canada uses segments its 10 million customers at least once a month to determine profitability, risk etc. Response to their advertising campaign increased from 3 to 30% Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

16. Market Research for EC Online Market Research Methods Market Research for One-to-one – Implementing Web-based surveys – Online focus groups – Hearing directly from customers – Tracking Customer Online Movements Observing Costumers transaction log A record of user activities at a company’s Web site clickstream behavior Customer movements on the Internet Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

17. Market Research for EC Cookies – Allow a Web site to store data on the user’s PC. So, when the customer returns to the site, the cookies can be used to find out what the customer did in the past. Web Bugs - Tiny graphics files embedded on e-mail messages and in Web sites that transmit information about the users and their movements to a Web server Spyware - Software that gathers user information over an Internet connection without the user’s knowledge. – Usually used to gather information for advertising purposes. – Typically downloaded with freeware Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

18. One-to-One Marketing, Loyalty, and Trust in EC collaborative filtering Once a company knows a consumer’s preferences (e.g. what music they like), it would be useful if the company could predict without asking, what other products or services this consumer might enjoy. One way is through collaborative filtering. Collaborative Filtering is a personalization method that uses customer data to predict, based on formulas derived from behavioral sciences, what other products or services a customer may enjoy; predictions can be extended to other customers with similar profiles E.g. method – Rule-based filtering E.g. if customer age > 35 and income > $100,000, display Mazda 606 else display Proton Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

19. Web Advertising Traditional Advertising One way mass communication, impersonal Web Advertising interactive marketing Online marketing, enabled by the Internet, in which advertisers can interact directly with customers and consumers can interact with advertisers/vendors – Two major business models for advertising online: Using the Web as a channel to advertise a firm’s own products and services Making a firm’s site a public portal site and using captive audiences to advertise products offered by other firms Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

20. Online Advertising Paid message on a Web site, online service or other interactive medium, such as interactive messaging 2002: $6.3 billion spent, expected to grow to $9.1 billion by 2007 Advantages: -Ability to target ads to narrow segments and track performance in almost real time - Provide greater opportunity for interactivity Disadvantages: - Concerns about cost versus benefit - Concerns about how to adequately measure results Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

21. Web Advertising Why Internet Advertising? – Another channel to advertise – Television viewers are migrating to the Internet – Advertisers are limited in the amount of information they can gather about the television and print ads – Other reasons why Web advertising is growing rapidly: Cost (Cheaper) Richness of format Personalization Timeliness Location-basis Branding Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

22. Web Advertising Some Internet Advertising Terminology ad views The number of times users call up a page that has a banner on it e.g. ad views per day click (click-through or ad click) A count is made each time a visitor clicks on an advertising banner to access the advertiser ’s Web site Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

23. Web Advertising CPM (cost per thousand impressions) The fee an advertiser pays for each 1,000 times a page with a banner ad is shown conversion rate The percentage of visitors who actually make a purchase As an example, a website that generated $100,000 of sales through 2,000 orders in a month with 40,000 visits, has an Average Order Value of $50 and Conversion Rate of 5% (which is quite high): $100,000 ÷ 2,000 = $50 AOV 2,000 ÷ 40,000 = 0.5 = 5% CR click-through rate (or ratio) The percentage of visitors that are exposed to a banner ad and click on it Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

24. Web Advertising click-through ratio The ratio between the number of clicks on a banner ad and the number of times it is seen by viewers; measures the success of a banner in attracting visitors to click on the ad hit A request for a Web page or file. To determine popularity or traffic of a site. visit A series of requests during one navigation or visit to a Web site; a pause of a certain length of time ends a visit Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

25. Web Advertising unique visit A count of the number of visitors to a site, regardless of how many pages are viewed per visit stickiness Characteristic that influences the average length of time a visitor stays in a site Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

26. Advertising Methods Banners banner On a Web page, a graphic advertising display linked to the advertiser’s Web page keyword banners Banner ads that appear when a predetermined word is queried from a search engine random banners Banner ads that appear at random, not as the result of the user’s action Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

27. Advertising Methods Benefits of Banner Ads – By clicking on them users are transferred to an advertiser’s site, and frequently directly to the shopping page of that site – The ability to customize them for individual surfers or a market segment of surfers – Viewing of banners is fairly high because “forced advertising” is used – Banners may include attention-grabbing multimedia Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

28. Advertising Methods Limitations of Banner Ads – Cost – A limited amount of information can be placed on the banner – Viewers have become somewhat immune to banners and simply do not notice them as they once did Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

29. Advertising Methods banner swapping An agreement between two companies to each display the other’s banner ad on its Web site banner exchanges Markets in which 3 or more companies can trade or exchange placement of banner ads on each other’s Web sites e.g. Co A shows Co B banner, Co B shows Co C banner and Co C shows Co A banner Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

30. Advertising Methods pop-up ad An ad that appears in a separate window before, during, or after Internet surfing or when reading email Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

31. Advertising Methods E-Mail Advertising Search Engine Advertisement—The major advantage of using URLs as an advertising tool is that it is free – Improving a company’s search-engine ranking (optimization) e.g. include keywords – Paid search-engine inclusion Question – What are the advantages & limitations of listing a company’s URL onto a search engine? Advertising in chat rooms Advertising in newsletters Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

32. Does Online Advertising Work? True that clickthrough rates may be low, but these are just one measure of effectiveness Research indicates that most powerful marketing campaigns include both online and offline advertising Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

33. Pricing Model for OnlineAdvertising 4 types of pricing model :- Exposure Model Click-Through Model Interactivity Model Purchase Model Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

34. Exposure Model Passive advertising exposure, in which consumer does not consciously decide to view the banner/ advertisement. Based on CPMs( cost-per-thousand exposures) or flat-fees applied to site exposure or banner advertisement exposure. Dominant pricing model Simply count the number of visitors exposed to a banner on that site. Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

35. Click-Through Model Advertiser does not pay for all viewers. Advertiser pays only for customers that actually click on the banner and visit the site. Only 4% website visitors click on banner advertisement (DoubleClick, 1996) Strength  Measures customers who are attracted (by the banner) to visit the site. Weakness -Low level of acceptance by companies selling ad space (depends on the creativity of advertisement and level of interest generated). -Difficulty in effectively measuring click-through rate. -No guarantee that visitor will spend substantial time to view the website. Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

36. Interactivity Model Advertisers pay only for customers who spend time on their site after clicking on the banner ad. Strength - Advertisers only pay for customers who actually looks like considering to buy. Weaknesses -Low level of acceptance by companies selling ad space (Web publishers like print medium not responsible for activity related to advertisement). -Effective measurement of time spend/ pages visited ? Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

37. Purchase Model Outcome-based “One hundred thousand people going to a site is worth something, But a site that only five person visit can be worht more if they are the right five person’ (Murphy, 1996) Advertisers pay only for customers who actually follow the banner ad link and follow through the process to purchase. Strength - Advertisers pay only when the ad is successful Weaknesses - Very low acceptance by companies selling ad space Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

38. What is Avatar? Avatar – Animated computer characters that exhibit humanlike movements or behaviors In 3D or virtual reality games and in some chat forums on the Web, your avatar is the visual "handle" or display appearance you use to represent yourself. In the Hindu religion, an avatar is an incarnation of a deity; hence, an embodiment or manifestation of an idea or greater reality. Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

39. What is Chatterbot? A Chatterbot is a program that attempts to simulate typed conversation, with the aim of at least temporarily fooling a human into thinking they were talking to another person. E.g.http://romahi.com/yazann/Mitbolel/Mitbolel.html Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce

40. Summary 1. Online Decision Making of Consumers 2. Describe how companies are building one toone relationships (personalization) with customers. – e-loyalty and e-trust 3. Describe consumer market research in EC. 4. Web advertising and marketing 5. Intelligent agents in consumer issues and advertising applications – Avatars & Chatterbots Faculty of Information Communication and Technology BTECH3101/BIT2512/BIT2514/BIT2513/BTECH2309 | E-Commerce